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Chavez Ex's Exxon


Pressure on oil prices remains high.

Intensifying the battle between oil-rich Venezuela and Exxon Mobil (XOM), Venezuelan President Hugo Chavez announced he will turn off the spigot to the world's biggest oil company in retaliation for the firm's decision to freeze billions of dollars in state oil assets.

A legal victory last week in British courts gave Exxon the power to prevent Venezuela from accessing over $12 billion of its assets around the world. Further antagonizing the South American leader, Exxon delayed informing him of the ruling for 24 hours – a move Bloomberg reports netted Exxon $242 million in profits.

At issue is a conflict dating back to last year, when Venezuela forcibly took a majority interest in four Western oil projects in the country. Most oil companies involved accepted minority stakes and pressed forward, but Exxon and Conoco Philips (COP) refused to back down. Exxon and Venezuela's state-run oil company Petroleos de Venezuela, or PSVDA, have been locked in a legal battle ever since.

Venezuela is the United States' fourth largest supplier of energy, and its sulfur-heavy crude is some of the hardest to process in the world. Exxon is one of the few refiners with the facilities to handle the heavy crude, but according to the Wall Street Journal Venezuela may just sell its oil to third parties who could then sell it to Exxon at a higher price.

Concerns over a slowing global economy have pressured crude prices, which have retreated from recent highs. Venezuela's socialist state is heavily reliant on government money to function, and a drop in oil prices may reduce its ability to continue generous social programs.

Further, the country's high dependence on petrodollars means the measure is a risky one for Chavez, whose popularity at home is already waning. However, since over two thirds Venezuela's oil ends up in American fuel tanks, Chavez may be hard pressed to toe the line.
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